A key question for the Federal Reserve as it tries to tamp down rising prices is whether or not inflation is creeping into pay rates.
A "Now Hiring" sign at a McDonald's restaurant in Yorba Linda, Calif, offers pay starting at $15 an hour on Sept. 13, 2021.Jan. 28, 2022, 10:34 PM UTCThe American economy wrapped up 2021 on an inauspicious note: Inflation notched another once-in-a-generation high, consumer spending took an omicron hit and employers’ costs to keep people on the payroll continued to climb.
For the first time in decades, wages for those lower down the earnings ladder are increasing at a much more rapid rate than high earners. Policymakers at the Fed and elsewhere also use the personal consumption expenditures price index as a key yardstick for measuring inflation. So-called core PCE backs out food and energy prices — which are volatile enough on a month-to-month basis that they can distort the bigger picture. For December, the broader PCE jumped by 5.8 percent on a year-over-year basis. Core PCE rose by 4.9 percent, the highest since 1983.
The silver lining, to the extent that there is one, is that markets don’t expect these blistering-hot numbers to last very long — provided the American consumer can hang on. The University of Michigan’s Surveys of Consumer Sentiment found that optimism plunged in the first month of 2022, with sentiment hitting its lowest level since November 2011.“If you look at breakeven inflation, which is a measure of inflation expectations… that’s actually down a little bit.
The Surveys of Consumers chief economist Richard Curtin noted that, while the initial supply and price shocks were triggered by Covid, the factors influencing how Americans today feel about the economy and their expectations have taken on a life of their own — a dynamic that poses a threat and a challenge to policymakers.
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